Rand Gains as Fed Optimism Outweighs S. African Current Account

By Chris Kay -
Sep 11, 2012

The rand gained, erasing earlier
declines, on optimism the U.S. Federal Reserve may signal
further stimulus at a meeting this week.

The currency of Africa’s largest economy advanced 0.2
percent to 8.1777 a dollar at 3:19 p.m. in Johannesburg, after
earlier retreating as much as 0.5 percent. Yields on the
nation’s 6.75 percent bonds due March 2021 dropped one basis
point, or 0.01 percentage point, to 6.58 percent.

The Federal Open Market Committee will discuss additional
measures to stimulate the U.S. economy at a two-day meeting
starting tomorrow. Fed Chairman Ben Bernanke said on Aug. 31 he
wouldn’t rule out steps to lower an unemployment rate he
described as a “grave concern.” The gap on South Africa’s
current account, the broadest measure of trade in goods and
services, grew to 6.4 percent in the second quarter, the widest
shortfall since the third quarter of 2008, from 4.9 percent of
gross domestic product, the Reserve Bank said in its Quarterly
Bulletin released in Pretoria today.

“Generally, the market continues to trade with a positive
risk bias ahead of the much-awaited FOMC decision,” Benoit Anne, the London-based head of emerging markets research at
Societe General SA, said in e-mailed comments. “The rand, which
did sell off earlier this morning after a particularly bad
current account number, did not waste too much time staging a
bounce back.”

Debt Crisis

A debt crisis in Europe has damped demand for exports from
a region that buys about a third of shipments from South Africa,
curbing economic growth. Manufacturing production declined 1
percent in the second quarter, according to Statistics South
Africa, and the government and central bank forecast economic
expansion will slow to 2.7 percent this year from 3.1 percent in
2011.

The rand is showing a “weaker bias” and will probably end
the year between 8.40 and 8.60 per dollar, with the data posing
“upside risk” to the currency, Brigid Taylor, the head of
institutional flow sales at Nedbank Group Ltd. (NED)’s investment
banking unit in Johannesburg, said by phone.

The deficit swelled even as net purchases of South African
bonds increased to 74.24 billion rand ($9 billion) this year, 57
percent more than the whole of last year. South Africa’s
inclusion next month in Citigroup Inc.’s World Government Bond
Index is luring money managers who use the gauge to measure
performance.

Mining Strikes

“With kind of inflows we’re seeing into the bond market, I
would’ve expected to see the deficit a little more contained --
that was not the case,” Nedbank Capital’s Taylor said. The
reading on the current account in the second quarter doesn’t
“bode well” for the rest of the year, with strikes in the
mining industry reducing output, she said.

Lonmin Plc (LMI) workers went on strike at the company’s platinum
mine in Marikana in the North West province on Aug. 10,
demanding higher wages. Police shot dead 34 protesters on Aug.
16 at the Marikana operations following a week of violence in
which 10 others died. Many miners have since refused to go back
to work while unrest has spread to Gold Fields Ltd. (GFI), where an
illegal strike is under way.